Many families include someone with a disability who relies, or may one day rely, on public benefits. An inheritance left to that person directly can cost them those benefits, including the health care coverage they depend on.
A Special Needs Trust (also called a “Supplemental Needs Trust”) lets you provide for them without putting their benefits at risk. This article explains how it works and what to think about.
Why an inheritance can affect benefits
Some benefits are available only to people with very limited income and savings. These include Supplemental Security Income and Medicaid, which is called Apple Health in Washington and the Oregon Health Plan in Oregon.
If your family member inherits money outright, it counts as their own. They may lose these benefits until the money is spent down to the limit.
Not every benefit works this way. Social Security Disability Insurance and Medicare, for example, do not depend on savings. Your attorney can help you sort out which benefits your family member receives or may receive.
What a Special Needs Trust does
A Special Needs Trust holds your family member’s share of your estate instead of giving it to them. A Trustee decides how to spend it for them. Because your family member does not own or control the money, it generally does not count against their eligibility.
The trust is meant to add to benefits, not replace them. It can pay for costs benefits do not cover, such as therapies, equipment, education, recreation and travel. Some documents call it a Supplemental Needs Trust, which means the same thing.
The trust can be part of your Will or your Revocable Trust. It holds only what you leave, never your family member’s own money. When your family member dies, what remains passes to the people you choose.
If the person with a disability is your spouse, the trust generally must be created in your Will, not in a Revocable Trust. The benefit rules treat trusts between spouses differently.
Money that already belongs to the person with a disability, such as a legal settlement, needs a different kind of trust with different rules. Your attorney can explain the difference.
What it does not do
A Special Needs Trust manages money. It does not make personal, medical or living decisions for your family member, and it does not give anyone the authority of a guardian.
If your family member needs help with those decisions as an adult, that is a separate matter from your estate plan. Talk with your attorney about guardianship and the alternatives to it.
Choosing a Trustee
The Trustee’s choices decide whether the trust protects benefits, so this role matters. A good Trustee:
- Understands, or is willing to learn, how the benefit rules work
- Keeps careful records
- Knows your family member and pays attention to their needs over time
- Can serve for many years, or has named successors who can
Some families name a relative together with a professional Trustee, so one brings personal knowledge and the other brings experience with the rules. For more on choosing a Trustee, see this article.
If there is no one to serve as Trustee
Some nonprofits run pooled special needs trusts. Each beneficiary has a separate account, and the nonprofit manages it. Your plan can leave your family member’s share to an account like this:
The Developmental Disabilities Endowment Trust Fund is a state program managed day to day by The Arc of Washington State. Families can contribute to a third-party account for their family member. To enroll, the beneficiary must live in Washington, have a developmental disability as determined by the state’s Developmental Disabilities Administration, and be under 65.
The Arc Oregon runs the Oregon Special Needs Trust, a pooled trust. Families can contribute to a donor-funded account for a loved one with a disability.
Ask each program about its current terms and fees, and tell your attorney so your plan can name the account.
What can undo the plan
A Special Needs Trust protects only what reaches it. Watch for these gaps:
- Beneficiary forms: Retirement accounts and life insurance pass by beneficiary form, not by your Will. If your family member should share in an account, the form should name their Special Needs Trust, not them.
- Gifts from other relatives: A grandparent or other relative who leaves money directly to your family member can cause the same problem. Let them know about the trust so they can leave gifts to it instead.
- Valuable belongings: Some items, such as jewelry or collectibles held for their value, can count against eligibility. Your plan can send your family member’s share of your belongings to the Trustee.
For more on beneficiary forms, see this article.
If you are not sure someone will need benefits
A disability can arise later, after an accident or illness. Your plan can include a provision for that. It lets your Personal Representative or Trustee set up a special needs trust later, if a beneficiary needs one before receiving their share. Trusts that give the Trustee broad discretion can also adapt if needs change.
ABLE accounts
An ABLE account is a tax-advantaged savings account for a person whose disability began before age 46. Within the program’s limits, money in it generally does not count against eligibility for most benefits. It can be spent on disability-related expenses.
Your family member can save their own earnings in an ABLE account, and a Special Needs Trust can contribute to one. Washington and Oregon each offer an ABLE savings plan.
Write down what the Trustee should know
A letter to the Trustee can describe your family member’s routines, care, doctors, likes and dislikes, and your hopes for their life. It is not a legal document, but it helps the Trustee make decisions you would agree with.
In the questionnaire
The Family Information page has a box to check for a child or family member with a disability or special needs. The Estate Planning Goals page also offers the goal “Provide for a disabled beneficiary.” Checking either one lets your attorney know this planning may be needed.
Want to read more?
These articles are optional.
- Outright or in a trust: How your beneficiaries receive what you leave them. See this article.
- Beneficiary designations: How retirement accounts, life insurance and other property outside your Will fit with your plan. See this article.
- Glossary: Common estate planning terms. See this article.